Once one has made the decisive choice to get out of debt moving forward, a major expense that each must consider is housing.
Home Ownership
Home ownership is oftentimes trumpeted as a must when in reality, it is not. In fact, one can strategize their finances, including the creation of a solid retirement account, without ever owning a home. This requires careful planning, and retirement account contributions are key.
Benefits to Renting
For most who are in debt, renting beats buying and can even make more sense than continuing to own a home. Some of the reasons include:
- Cost of maintenance. Typical rental agreements do not require that tenants bear maintenance costs of the property
- Flexibility to move/relocate. Many of those that struggle with debt also have job insecurity. Even if someone in debt does not have job insecurity, home ownership creates a major financial disincentive to relocate to another area for work. In the current economic environment, having less disincentives to relocate for any opportunity to find work (if unemployed) or to take a better job (if employed) can be a major aid to one’s cash flow, not to mention career trajectory.
- Simplified debt reduction plan. Especially in comparison to adjustable rate mortgages, paying rent means planning for a fixed amount to pay in rent from month to month. This reduces cost of living uncertainties and increase the chances of forming and executing a plan to quickly eliminate outstanding debt.
- No property taxes to pay. Some areas of the country have high property taxes. As a tenant, you will not be responsible to pay these.
- No homeowner’s insurance to pay. Although renters can purchase tenant’s insurance, this is less than the cost of homeowner’s insurance.
- No local government special assessments to pay. In the current economy, special assessments on property can appear more frequently. Avoid these by renting instead of owning.
- Corollary effects. Home owners typically accumulate more possessions than renters, which can add to to your disincentives to relocate in order to improve your cash flow.
Though some of the highest risks for homeowners exist when the value of homes are about to decline, and home values have already declined in many markets dramatically, the current and continuing recession increases the uncertainty of income, stemming in part from job risk. For many, this translates directly into cash flow problems that undermine the value of buying and owning a home, even when conditions seem optimal. For those in debt, the chance to reduce financial risk by renting is more important than starting to build equity in a home through a mortgage. It is critical to look at some of the key elements of one’s financial picture: cash flow, existing debt, and budget, and carefully evaluate the housing options accordingly.
Raj Patel writes for DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs. DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.
Tags: debt, debt elimination, Debt Management, Debt Paydown, debt plan, debt reduction, homes and debt, mortgage debt, mortgages and debt, renting and debt
